Shares of cementmaker Lafarge was the toast of investors last week following the release of its first post-disposal audited financial report.
The shares gained 41.3percent during the week after opening at N8.95 on Monday to close at N12.65 on Thursday, the last trading day of the week following the declaration of Friday and Monday as public holiday.
Specifically, it gained 9.5 percent, 9.69percent, 9.77percent and 7.20percent on Monday to Thursday respectively.
The rush for Lafarge shares can be linked to its return to the path of profitability.
Highlights of the result show that management decision to focus on Nigerian market may have finally paid off. Revenue stood at N212.9billion f rom N217.8billion in 2018. Cost-of-sales surged slightly to N157.04billion from N150.7billion in 2018. Selling and marketing expenses stood at N5.09billion from N3.89billion in 2018,
Administrative expenses declined to N17.55billion from N24.87billion in 2018. Profit after tax ballooned to N115.10billion from a loss of N8.8billion in 2018. It also propsed a final dividend of N1 per ordinary share to its shareholders.
WAPCO’S impressive 2019 full-year standalone earnings is not surprising following the divestment of its Lafarge South Africa Holdco. (LSAH) that has been the major drag to the group’s business over the last few years. Prior to the disengagement, LSAH had reported a loss of NGN9.4 billion over 7M-19
According to Mustapha Wahab, analyst at Cordros Capital, at that run-rate and assuming no divestment, the group would have reported another loss after tax of N570.0 million,
Also, the repayment of all WAPCO’S FX related borrowings means that the company’s earnings are now less volatile despite the recent oil price collapse-induced currency pressure.
The proceeds from LSAH disengagement have been used to offset all its Foreign Currency debt of $293 million, including accrued interest of $23 million. From
N266.20 billion in 2018, debt (ex-overdraft) has declined to N64.19 billion, paving the way for a 56.1percent year-on-year decline in finance charges over 2019FY. Total debt may likely reduce further to N48.2 billion, due to the maturity of one of its bonds in 2019 (N26 billion)
Further analysis of the result shows that Lafarge’s energy efficiency remains a significant tailwind as gross margin deteriorated significantly over 2019FY (-454bps).
The increase in Cost Of Sales was largely on account of a 17.6percent year-on-year expansion in production costs. Management attributed the growth in production costs to the huge deposit of some expensive raw material which it had to utilize first before the cheaper ones.
The company said it has completed its Captive Power Plant (CPP) in Ashaka, which could deliver energy cost savings of c.20%. Beyond that, the company also reiterated its commitment towards raising Alternative Fuel usage to c.50% (from c.30% currently) of its energy need by end of 2020.
